- You missed the warning signs in Manappuram’s latest earnings – and your portfolio feels it.
- Consolidated PAT fell 14% YoY to INR 2.4 bn, while NII dropped 18%.
- Credit cost ratio improved to 2.9%, but absolute credit costs rose above estimates.
- Gold‑loan AUM is still growing ~40% CAGR through FY28, driven by higher gold prices.
- Motilal Oswal maintains a Neutral rating with a target of INR 330.
You missed the warning signs in Manappuram’s latest earnings – and your portfolio feels it.
Manappuram Finance (MANAPPURAM) reported a 14% year‑on‑year decline in consolidated profit after tax (PAT) for Q3FY26, settling at INR 2.4 bn. Net interest income (NII) slipped 18% to roughly INR 13 bn, and profit‑before‑provision (PPoP) fell 29% YoY to INR 6.6 bn, albeit a modest 5% beat against internal expectations. Operating expenses rose 7% YoY to INR 7.6 bn, bolstered by a one‑time INR 19 m provision linked to new labor codes. Credit costs rose to INR 3.5 bn, marginally above forecasts, yet the annualized credit cost ratio fell 40 basis points quarter‑on‑quarter to 2.9%.
Why Manappuram Finance’s Profit Slip Mirrors Gold‑Loan Sector Strain
The gold‑loan NBFC space is currently navigating a perfect storm of higher input costs, tighter regulatory scrutiny, and volatile gold prices. Manappuram’s 14% PAT dip is not an isolated event; it reflects the broader pressure on margin expansion across the sector. While gold prices have surged, the cost of funding has also risen, eroding the spread between loan rates and the cost of capital. This dynamic explains the 18% NII contraction despite a 40% AUM CAGR projected through FY28.
What Competitors Like Muthoot and Tata Capital Are Doing Differently
Peers such as Muthoot Finance and Tata Capital have adopted a two‑pronged approach: (1) aggressive diversification into digital gold‑backed products, and (2) tighter credit underwriting to curb non‑performing assets (NPAs). Muthoot’s loan‑to‑value (LTV) ratios have tightened from 85% to 78% over the past year, improving its credit cost ratio to 2.4%. Tata Capital, meanwhile, leverages its broader banking franchise to secure cheaper wholesale funding, allowing it to maintain a healthier NII spread. Manappuram’s strategy of aligning its lending rates with peers is positive, but the company still trails in digital innovation and cost‑of‑fund optimization.
Historical Cycle: Gold‑Loan NBFCs in 2018‑19 vs 2025‑26
During the 2018‑19 cycle, gold‑loan lenders enjoyed a double‑digit AUM surge fueled by rising gold prices and low interest rates. However, a sudden dip in gold prices in early 2020 led to a sharp credit cost spike, forcing many firms to tighten loan terms. The sector rebounded in 2021‑22 as gold regained strength, but the underlying risk‑adjusted returns remained compressed. The current 2025‑26 environment mirrors the post‑2020 rebound: higher gold valuations boost loan volumes, yet rising funding costs and regulatory overheads compress profitability, echoing the same margin squeeze seen in the previous cycle.
Decoding the Numbers: NII, Credit Cost Ratio, and OPEX Explained
Net Interest Income (NII) is the core earnings driver for loan‑focused NBFCs; it represents the spread between interest earned on the loan book and interest paid on deposits or borrowings. A drop in NII signals either lower loan yields, higher funding costs, or both.
Credit Cost Ratio measures credit losses as a percentage of total advances. Manappuram’s decline to 2.9% QoQ indicates improving asset quality, even though absolute credit cost (INR 3.5 bn) exceeded consensus.
Operating Expenditure (OPEX) includes staff costs, technology spend, and regulatory compliance. The 7% YoY rise reflects the impact of new labor codes and ongoing digitization initiatives. While one‑time provisions of INR 19 m are minimal, they hint at future cost pressures as compliance frameworks tighten.
Outlook & Valuation: Is INR 330 a Fair Target?
Motilal Oswal projects a 40% compound annual growth rate (CAGR) in AUM from FY25 to FY28, driven primarily by higher gold prices and market‑share gains. Using a 1.6× forward 2027 consolidated book‑value per share (BVPS) multiple, they arrive at a target price of INR 330, implying modest upside from the current market level.
Key valuation drivers to watch:
- Gold Price Trajectory: Sustained price appreciation fuels loan demand but also raises collateral valuation risk.
- Funding Cost Curve: Access to low‑cost wholesale funding will be decisive for NII spread recovery.
- Regulatory Landscape: New labor and RBI guidelines may inflate OPEX, affecting profit conversion.
If Manappuram can successfully digitize its origination platform and lock in cheaper funding, the 1.6× BVPS multiple could become generous. Conversely, a slowdown in gold demand or a spike in NPAs would compress valuation multiples.
Investor Playbook: Bull and Bear Scenarios
Bull Case
- Gold prices stay above INR 55,000 per 10 g, driving loan demand and AUM growth.
- Successful rollout of a mobile‑first gold‑loan app reduces customer acquisition cost and improves loan‑to‑value management.
- Funding mix shifts towards low‑cost term loans, lifting NII spread by 150 bps.
- Credit cost ratio falls below 2.5% as underwriting tightens, boosting net profit margins.
Bear Case
- Gold prices retreat sharply, curbing loan origination and compressing interest income.
- Regulatory fines or additional labor‑code compliance costs raise OPEX by >10% YoY.
- Funding costs rise above RBI repo trends, squeezing NII spreads.
- Credit losses surge, pushing the credit cost ratio above 3.5% and eroding profitability.
In summary, Manappuram Finance sits at a crossroads where macro‑gold dynamics, funding economics, and operational efficiency will dictate whether the INR 330 target becomes a bargain or a trap. Investors should monitor gold price trends, the company’s digital rollout, and credit cost movements before taking a position.